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In today’s introduction portion of the Creating Wealth show, Jason Hartman invites Sarah on to the show to talk about the Memphis market. Jason also announces a property tour for the Memphis area in May, so be sure to buy your early bird tickets now before the price raises at JasonHartman.com. Today’s Creating Wealth principle guest is Andrew Zatlin. He is an economists and is famously know for his Moneyball Economics. He sits down with Jason to talk about Hookernomics, how you can learn where the market is going by simply talking to escorts, the unstable Japanese economy, how gold will drop in prices, and much more on today’s episode.

Hey, welcome to the Creating Wealth show, this is Jason Hartman your host and this is episode 493. 493. Today our guest will be Andrew Zatlin, the Moneyball Economist. If you saw the film, the movie, Moneyball, it was pretty good and we’re going to kind of talk about that stuff, but I’ve got Sarah with me to participate in the intro section. Sarah, how are you?

Sarah:

I’m good, thanks for having me.

Jason:

Yeah, it’s good to have you on. Thanks for doing this impromptu little intro with me. I appreciate it. So, the thing I wanted to have you talk about with our listeners is what is going on in Memphis. Boy, business is just, like, I can not believe how many of our investors are buying in Memphis. We have decided to do a property tour in Memphis because of the great interest. We were there about two years ago. Sarah, just wanted kind of have you share your take on that market with our listeners.

Sarah:

Yeah, Memphis has been great. We get solid inventory because we’ve got two really strong providers there. We actually have four providers there. We do that because it’s just a great crash flowing market and we can get the inventory there. We’re excited about the tour. We’ve got some new properties online for the tour and what I really like is that we’re really gearing towards some of the, I don’t want to say the high-end, but higher-end for rental properties. Meaning, you know, we’re looking after some nicer neighborhoods with good quality tenants, stronger tenant base, and, you know, we’ve got some of the less expensive properties too. So, we’re really getting a good range of properties in this market.

Jason:

Yeah, you know, that’s the one thing that investors love about Memphis. In other inventory constricted markets, we can really source some good product in Memphis. I’m actually coming out of an exchange now and I’m trying to decide what market to buy in. I don’t know, maybe, I gotta buy two properties right now for this exchange and I’m either going to do Memphis, Little Rock, or Atlanta. I’m kind of thinking about Chicago too. Sarah, be my investment counselor, help me decide.

Sarah:

I already told you, you have to buy in Chicago, so that we can really open up that market and get confidence in that market, because the properties look really good. I mean, they’re a little more expensive, the taxes are little bit higher, but so are the rents. It’s kind of like, it reminds me of some of the Texas market.

Jason:

It’s the same with Texas, because everything passes through in these markets it does. It doesn’t pass through obviously in California. If you buy a million dollar property, you’re not going to rent it for $10,000 a month, but in these markets, like you say Texas, you know, that higher property tax pass through the tenant, right?

Sarah:

It absolutely does. So, we’re looking with a couple of new providers out there as you know and it’s had a couple of clients, actually, fly out, I think three clients in the last couple of weeks fly out to the market, tour with both of the providers, and just really good feedback on the type of properties, the neighborhood, the level of rehab that they do. So, things are looking good out there as well.

Jason:

You know what’s interesting and you were bugging me a few months ago, we were kind of thinking where do we do our next property tour and we were debating a couple of different markets and you were saying Memphis and I was saying, you know, we already did a tour in Memphis. You said two things to me, Sarah, I don’t know if you recall this, one is that Jason, that’s where so much interest is, I think we should just let the clients pick, you know basically by their level of interest, where the next tour is. The second thing you said to me, which I couldn’t believe, is you said, you realize it’s been about two years since we did a tour in Memphis. I thought, really? Time is just flying by so quickly.

Sarah:

Yeah, I mean, I remember when we went out there and it was somewhat of a new market. I think we’ve only been in that market, I don’t know, 6 months or a year. So, it was great for us, you know, to meet these people in person and really get a feel for that market and it’s just been steady. We’ve got good property management and we’ve got two really good solid property managers and that’s why our clients go back there and buy again. Properties management is key, if it’s working for us, let’s do another tour there.

Jason:

Yeah, I wanted to do something different in a market that we haven’t been yet, but gosh, I guess, you know, give everybody what they want and that’s what they want. So, that’s what we’re doing. So, the tour, let me give you the dates for that, people, the property tour dates are May 2nd and 3rd. Thanks to Sarah we’re changing up the format of this tour a little bit. We’re going to do the Creating Wealth seminar, however we’re going to do it split over two days and Sarah this was your idea and I think it’s a great idea, by the way.

Sarah:

I hope so.

Jason:

We’ll see how it works. So, here’s the plan. On Saturday May 2nd, okay, by the way you can register for the tour at JasonHartman.com in the events section. Saturday May 2nd, we’re going to get together, we’re going to have breakfast at the hotel, we’re going to do the seminar from nine till noon, then we’re going to break, we’re going to get on the tour bus and we’re going to tour for just an hour or so and then we’re going to go to lunch, we’ll be at lunch by one PM, okay, and we’re going to have lunch out in the field. I’m sure we’ll have some Memphis barbeque or something really cool like that. We always try and do some theme lunches and we’re going to do the property tour for the rest of the day until about six and then we’re going to all have dinner together and then on Sunday morning we’ll meet back in the hotel room and we’ll continue the Creating Wealth Seminar and we’ll end that day by about four o clock on Sunday May 3rd.

So, I think this format is going to be really cool. I’ve never split up the Creating Wealth seminar like that before in to two days, but I think it’ll be good. I think people will have a lot more mental endurance, because there’s an old saying in education, the mind can only absorb as much as the seat can endure. So, we’ll cut it up and do it over two days and then, you know, have a nice property tour right in the middle of it. The great thing is, we’ve never done it this way before either, we’ll be able to analysis and discuss in-depth each property we see on Saturday afternoon when we meet back in the hotel room on Sunday morning.

Sarah:

Yeah, I think that’s key is, you know, in the past we’ve done the tour on Sundays, so people get excited about the inventory, but they’re concerned about catching their flight, so this way we can talk about the properties we saw Saturday throughout Sunday and I think it’s going to work really well this way.

Jason:

really like this idea of meeting back and like debriefing on the exact properties we saw, looking at the pro formas of each property, analyzing the differences in each property, analyzing the differences in each property, analyzing the neighborhoods, analyzing the school districts, analyzing the tenant profiles. I’m just super excited about this format. It’s more expensive for us to do the tour this way, because we need to rent the seminar room, the meeting room for the hotel both days and pay for banquets and catering both days, but educationally and format wise for the attendees, I think it’s going to be a lot better and it’s going to be better for me too, because I don’t get so tired going straight through for a whole day, so I think I’ll be a little more resourceful for all the attendees as well. So, really excited about that format. Sarah, what else would you like to share just before we get to today’s guest, the Moneyball Economist in talking about, you know, just what’s going on in business. Business is phenomenally goodby the way, thank you all dear customers for making this what may well be our best year ever. Sarah, would you agree with that by the way? I’d think you would.

Sarah:

Well, maybe, it’s so early. It’s only March. I mean, time has definitely flown by. I can’t believe we’re warping up March here pretty soon and I think a lot of good inventory coming online just what I like to close with, you know, we’ve been working really hard, we’ve got carrier office on the phone all day with, you know, good providers and bad providers and we’re really weeding through the good and the bad and bringing on some new areas. You know, we talked about – you mentioned that we’ve done a lot in Memphis, but we’re careful not to over saturate any one market, so having more markets and more inventory allows us to, you know, spread the love into different markets, so I’m just really excited about the level of inventory we have right now.

Jason:

Well, that’s one of the things, really, we’ve always worked on it, it’s always a challenge, you know. When I was in traditional real estate I notice this problem being in the investment real estate business, the investment business exclusively for the last 11 years too, you know, it never seems like we reach this point of equilibrium where everything is balanced where we have the right number of buyers, the right number of investors buying property, and the right amount of inventory to match them with, but what happened is late last year we really, really, really got on the inventory bandwagon and really started sourcing good new areas and good new local market specialists. You’ve referred to them as providers a couple of times..

Sarah:

Sorry.

Jason:

During this talk today, but no, I just want to make sure everybody knows what that means. I call them providers too. Inventory providers or LMS or local market specialists as we refer to them, but the other thing that I’ve really noticed Sarah about this and I think it’s benefiting our clients a lot is that now that we have so many good providers, good local market specialists, number one is that we get to be a lot more choosey on who we pick to send that client too and number two, they know that we have more providers, more local market specialists and they’re trying to be more competitive and offer a better product and better service to our client, so I think that’s been really, really beneficially for the clients and frankly it makes our business easier to run too, because the clients just have better experiences, they get better deals on the properties and everybody is happy, you know?

Sarah:

Yeah, another thing that I just kind of learned over the last couple of years is that it allows us to not overload one property manager and any given market at the time. We were working really to have a couple of management options and when we get excited about a new market sometimes what happens is we get a lot of inventory and then the property manager gets loaded with a lot of the accounts at once and what I found is that we can really spread that out a little bit and manage that and this is something we’re doing something everyday that the clients don’t see, but it’s just really important that you don’t overload one property manage with too many accounts and too many rentals at one time and so I think we’re just really having a lot of success in that area as well in property management.

Jason:

That’s good, good stuff. I’m glad you kind of expressed that to our listeners, we’ve got some good new areas coming online as well and of course later this year we’ll do another property tour or two, so in the meantime, let’s go to Memphis, let’s go look for Elvis, see if he’s still around and look for some property deals. So, that tour again, you’ll want to fly in on Friday May 1st and then you can leave Sunday late afternoon/evening on May 3rd. So, get your flight reservations, we’re all confirmed. The info is on the JasonHartman.com website, that’s JasonHartman.com, click on invents and you register for the tour with some great early birding pricing there and that early bird pricing does go up as people start to register and even before we put it on the website, we had a few people that were ready to sign up, so we already got several people attending, so we look forward to seeing you there. Go to JasonHartman.com. Sarah, thanks for joining me and let’s go to our guest, the Moneyball Economist, here he is.

It’s my pleasure to welcome Andrew Zatlin to the show, he is the Moneyball Economist and editor of Moneyball Economics. I’ll tell you, just on our very, very brief pre-show discussion, this is going to be a fascinating guest, so I’m glad to have him and he’s coming to us from Northern California where all the startups and venture capital is and that’s San Mateo. Andrew, welcome, how are you?

Andrew Zatlin:

Jason, thank you so much for having me on today.

Jason:

It’s good to have you, so you are a fascinating guy. So, many people have seen the film Moneyball. When i heard about that, I just kind of ignored it because I’m not that into, you know, baseball or spectator sports in general, but after I watched it, I thought that was quite fascinating. What is Moneyball Economics?

Andrew:

Moneyball Economics is sort of we’re picking up the ball, so to speak, from what was going on in baseball. It’s the same concept of when situations change, you want someone from the outside, you want that fresh perspective and often times it takes an outside to bring that fresh perspective in, that’s part of Moneyball Economics. I’m coming more from Main Street than Wall Street. I’m anwho went into Silicon Valley and used big data to start tracking opportunities and then rolled my sleeves and said let’s do business based on this is the second part of Moneyball Economics, based on what the data is telling us.

Let’s not presuppose from a top down perspective what’s going on, let’s attach this from a bottom up perspective, what’s really going on, let’s use that data to make data-driven business decisions, and see what’s going on. I think ultimately wealth, if you really go back and see who’s created wealth, not who’s inherited it, but who’s created it, what you’ll find it’s someone who saw something no body else was seeing whether it was a perspective or access to information, that’s really what creates wealth is getting some place before someone else does. So, Moneyball Economics is my approach to taking a step back and saying, this is a 21st century economy. It is functioning very differently than a 20th century was.

The 21st century economy, what we’re buying, where we’re buying, how we’re buying, it’s all different, and it’s rapidly changed in the last decades. Facebook and Twitter, for example, didn’t exist particularly and yet all of a sudden these are major players coming through in some areas of commerce. So, it’s basically taking a step back and saying just like, by the way, I look like Brad Pitt to the audience, definitely not like Jonah Hill, the idea is, you know, coming in and saying we’ve got all of this information, it’s new, it’s exciting, some of it is noisy, the whole signal to noise issue, but let’s take a look at it. Let’s evaluate it and see what it can do, how it can inform our investing decisions, and our understanding of the economy. Just to close it out, one of the things, just a functional issue, most of the policy makers out there got their PhDs before the internet even existed, so they’re kind of approaching the world with a horse and buggy model, and we’re already driving cars.

Jason:

So, you mentioned Wall Street and no conversation about Wall Street would be complete without talking about hookers. How do you like that for a segue? So, what can the price, you know, what is the vice index first of all?

Andrew:

Vice index is, it’s a compendium of some data sets that I’ve been able to pull together, which track unmentionable vices although some of them were mentionable, tracks gambling, tracks alcohol consumption, but it also drugs and it track prostitution. It’s a 20 year index, it doesn’t change. So, a lot of times we look at Wall Street, they have models that are dynamic, which means every time they look at it, they’re going to re-wait and change and play around, it’s got 50 pieces of different data.

This is a straight forward model. It is what it is. It has successfully achieved the holy grail what economists are looking for which is how do you track luxuries spent. It’s interesting, just to kind of turn it around, last week we had some retail numbers come out. I forecast retail numbers and I’ve been doing it for about a year and a half and it’s based on this vice index that I’ve created. I was the number one person, I beat 86 forecasters on Wall Street, I beat every single one of them last week for accuracy and only a handful of us thought retail would contract and I was the one who thought it would contract where it contracted, so it has, I consistently beat consensus. In other words, I consistently beat Wall Street prods by tracking this data set. I have a finger on the pulse, you could say. Hookers have a finger on pulse of the real economy, but ultimately you can start academically with..

Jason:

So, your point is when men are spending money on hookers, that’s obviously a luxury expense, right? So, it’s a discretionary expense and your thesis is that when that declines that’s a sign that the rich or the upper-middle class are struggling and they’re pulling in the reins, right?

Andrew:

Pretty much. I was cutting to the chase and sort of saying, hey, you know, it has proven itself. The reality from a pure economic modeling standpoint, when you’re looking for leading indicators, something that’s going to tell you what’s happening today and, even better, tomorrow, you’re trying to find those financial behaviors. You know, what are you and really spending our money on? If we flush, are we going to go out and dine more often. If we got more money burning a whole in our pocket, are we more willing to take vacation. It’s that kind of thing.

Jason:

Yeah, that wealth effect certainty trickles down, no question about it, but you know, I would be curious and I don’t want to make this conversation about, you know, vices like prostitution, but how would you actually get the data? How would you know?

Andrew:

I’m willing to get my hands dirty, so to speak.

Jason:

It would have to be very anecdotal I would assume, right?

Andrew:

I’ll answer your question in a second, the key here is one man’s wants is another man’s needs, but it’s also luxury for one person is a yacht, luxury for another person might be a steak dinner, so the core heart of the problem tracking discretionary spending, luxury spending; luxury is sort of like the creme de la creme, right. Discretionary spending we do it all the time. Should I get a Starbucks or not kind of thing, but it’s that extra ummpfh. That really depends on how much money I have burning a hole in my pocket. The problem though, again, is finding those spending.

So, places that people are spending money on that cuts across abroad socio demographic and that was the challenge. Traditionally economists would measure luxury spending by looking at Sothebys or by looking at Tiffany’s, I’m sorry, that doesn’t apply to the 99% of US economy where as there’s 17 million pot smokers out there, so if you can track the consumption of marijuana at X-Y-Z price, you got something, right, you’re tracking something. It’s definitely not a luxury good – I say, it’s definitely luxury good, it’s not a need.

So, how do you get that data, right? That’s where economists traditionally, major economists, come to a halt. On Friday Bloomberg released an article where they were getting the virtues of vices, they were basically copying what I was saying and that is if you can track this frivolous spending, this luxury spending like gambling, like going out and drinking, then you really have some good visibility. They said the challenge is we can’t get to these other more illicit or undocumented spending like prostitution and my point is you can, I’ve done it, and I’ve succeeded.

The key thing here and what makes it so powerful is it’s fairly low dollar, you’re talking a couple of hundred dollars, the key here is, what sets it a part is it’s cashed based economy. When people go out and they’re gambling, when they’re buying illegal drugs, when they’re buying time with an escort, this is a cashed-based economy, so it’s really isn’t something you can put it on a credit card. Turn it around, the supplies of these services don’t take credit card, they don’t get lines of credit, if things are going bad, they have to move very quickly.

Jason:

That’s interesting, so when you look at a vice because it’s illegal, well, not all vices are illegal obviously, but when you take illegal vices, okay, which I would argue as a libertarian they should just all be legal, pretty much, but you know, that’s another debate.

Andrew:

Till the next time ladies and gentleman!

Jason:

Yeah, next time, exactly. Believe me, my listeners have heard me talk about this stuff before and, listen, I’m not saying I agree with it morally, I’m just saying it’s there, it’s real, it happens, and I think there’s a lot of sickness sort of kept pent up that would go away if these things were legal and there were outlets of it. Not saying it’s the highest form of the human being, okay, but anyway. So, what you’re saying is because they don’t operate like traditional businesses where they have credit lines and buffers, when you operate on cash and your clients are paying cash and you’re spending cash, it’s like a cash value, it’s a cash book accounting, right, so adaptation time. The adaptation has to be very quick, where as a normal business doesn’t give you the metric, the answer, as quickly as that, right? Is that your contention?

Andrew:

Exactly. So, if you can tap into that, which I have done, you’ve got the nature of the beast is a very, it’s very sensitive to the (#23:25?) of real time economics. I’ll give you an example. When the sequester happened in the fall of 2013 in Washington, D.C. came to a full on halt, the places where I gathered my data, there was a lot of concern. All of a sudden the phones were not ringing. Hookernomics was saying the impact of the sequester on year-term spending in the Washington, D.C., Maryland area was sudden and severe. As we saw later one and this was immediate. I could track this in the immediate cent, so what you have is just by virtue, I use the word virtue, no smirking everyone, this is serious, but just by virtue of the way the commercial marketplace function. If a customer is coming in, let me put some little numbers down, because this is where it gets interesting.

Someone comes in, let’s use the San Francisco rate of $300 an hour, that’s after taxes. Let’s say $450 before taxes, well the medium income in this area I think is about $50,000. So, as you start working these numbers through, someone is willing to spend a day of their wages for one hour what would be describe as having no utility value later on. They’re not walking away with an iPad. So, they’ve got to feel that they’ve got that cash in their pocket today that they’re willing to take one day of their wages and not just for today, but that won’t have a monetary impact next month.

They have the cash, the cash flow issue for the consumer is there and if they don’t, then the supply, the escort has got to respond. They respond like a hotel would, you know, you and I might get in our email boxes, hey, such and such hotel is doing a special, you know, come in, you’ll get three nights for two or free packing/buffet. That’s the same kind of behavior you would encounter here, because again, it is in essence a vacancy issue and so when the phone is not ringing, action has to be taken immediately, because rents have to be paid, cars have to be paid, you don’t get that everyday line of credit.

Jason:

So, what is going on in that market? I mean, what is it tell us? What do you forecast for the economy? That’s the million dollar question, right.

Andrew:

So, I did a survey! You know, there are tons of surveys. The federal reserve will go out in their various districts and ask about 100 businesses, what’s going on? How’s your business today? What are your clients telling you? And every month that information gets released. What’s the business outlet? Well, I did the same, except I just happened to target hookers as the businesses I was asking the same questions of.

So, I did a survey of, I literally copied the same questions that the fed asks. There’s a reason for this, I actually went to some folks I know at the Wall Street Journal and I said, let’s take these questions, I will ask prostitutes, because i feel like they have a much better handle on what’s really going on and let’s go to Krugman, let’s go to Friedman, let’s go to these guys who are the ivory tower economic, you know, geniuses of our times, let’s ask them the same questions, and then we’ll circle back in six months and see who is right and the Wall Street Journal and their infinite wisdom couldn’t say no, instead what they said was, “We don’t have the budget for that.” So, I went ahead and did it. I found the budget, God bless my wife for making sure we had the budget, right.

Jason:

Just out of curiosity, what kind of budget did you need to do that survey?

Andrew:

Hey, you’re asking someone for their time and you’re asking someone who makes their living for their time. I mean, imagine going to a lawyer and saying, hey, can I pick your brain for a few minutes, you think the lawyer is going to do that for free?

Jason:

Yeah, no, definitely not, but we’re talking about prostitution and lawyers in the same breath, it kind of goes together, doesn’t it? Sorry lawyers!

Andrew:

It’s a service industry. I think I smile a lot though, a lot less, when I talk to a lawyer, you know, these are – I think we need to step back here, a lot of people might have the wrong impression, they might have this pretty woman, you know, it’s a street walking who’s uneducated kind of impression. These are college educated women, a lot of them.

Jason:

Oh, yeah. Well, a lot of the times it’s the way they pay for college, frankly.

Andrew:

I think actually a lot of people might not be aware that when they go to cocktails and are out and about, they might be meeting escorts without knowing it. Someone who’s arm candy, you know, we’re talking about someone who, again, the Hollywood view, no. I’m in Silicon Valley, I’m surrounded, I think we talked about this, I’m surrounded by very worldly, very knowledgeable people. If you’re going to maintain a conversation with them, you better have your wits about you.

So, we’re talking about everything from high school education to graduate school education. We’re talking about not the hard luck stories, we’re talking about people who have made the decision to provide this service. So, I really want to make sure when we’re talking about who, you know, the people being surveyed, I’m not standing on the corner just, you know, chit chatting with Trixy and Jay, you know, I’m talking to everyone. It’s a very serious thing, I want to make sure that we’re clear there.

So, I did a survey and what was interesting is, first of all, it was great having a decision about how oil prices were affecting their business, and yes it is. Essentially the questions, I was trying to drive to, you asked me how does hookernomics help us, well what we’re really tracking is consumer spending and discretionary spending and intent to spend, and we’re tracking that tip of the pyramid. Again, this is after everything is said and done, do I have a couple of hundred bucks to hit the casino, do I have a couple of hundred bucks to go spend time with an escort, right. Everything else has to be taken of, not just today and tomorrow.

The survey was basically asking, where do you see inflation going and where do you see spending going? This was very informative to me. Essentially, you know, again, the questions were, do you see your costs going up, are you going to be raising prices, what are you hearing from your clients, so where the fed is asking a 100 people, I felt like I was asking a couple of thousand, simply because every escort I’m talking to is probably seeing somewhere around a dozen clients a week.

So, if they’re giving me feedback on what they’re hearing from their clients, I’ve got a good, good window into reality here. It’s also done across the country, so anyway, the ultimate feedback was very interesting, because what they’re saying is they don’t see costs going up, so they’re not feeling the inflationary pressure that might squeeze their margins and lead to price hikes, and at the same time, they’re not seeing their client base either decrease or increase the amount of services or demand. So, what we have here is a situation where it’s a service steady as you go.

The demand, pull, and inflation that a lot of people are talking about. Hey, there’s more money, more wages, more payroll, that’s going to be fighting for goods and services, that’s going to lead to inflation. It actually gets turned on its head here a little bit. What the feedback was the only reason we’re at as steady as you go situation and not declining is because of oil prices and that consequent inflation that’s going on right now, the deflation that’s going on. In other words, we’re seeing a pick up in demand that will disappear once oil prices go back up. I think that, you know, oil prices and where they’re going and where they’re not going, we can talk about that, but ultimately, we’re talking about our interest going to go up because the fed is seeing all this good news.

Traditional economists say, oh, we’re seeing this good news because there’s more money out there chasing fewer goods, you know, the usual argument about inflation, but in fact what happening is saying it’s not really more money that’s out there, there’s a temporary deflation that’s going on that’s keeping spending up as soon as that deflation works its way through the economy, everyone is going to pull back again and that’s what the escorts are telling us is they don’t feel inflationary pressure, they don’t feel the need to raise prices, and their clients really aren’t doing great. They’re not doing bad, it’s a steady as you go situation. As everybody knows, steady as you go is a precursor to some kind of inflection point.

Jason:

Yeah, inflection down or up, so inflection in terms of bull market or a bear market, which inflection?

Andrew:

So, here you’ve got a lot of real-time great feedback of people who make their living making sure that the phones are ringing and that they’re – they have to know what’s going on with the client bases economics and you’re talking about the top 1% and the bottom 99%. Now, my interpretation is I don’t really subscribe to a lot of the, I don’t get into these dogmatic wars, malthusian or that post-malthusian, I don’t get into that. I come out of a supply side. I actually had to work for a living, so I kind of know, you know, I keep it simple, are people buying stuff? Are businesses higher to make sure they can sell stuff? I sit here and one thing that has proven itself as a track record, as an indicator, of what’s really going on is jobless claims.

If you want to really know the truth, if you look at jobless claim this year relative to last year same time, that will with a 100% batting average, tell you exactly where we are on the business side. It’s very basic and fundamental and it’s kind of one of those things where you had an executive dashboard as an investor and you can only put a handful of things on it, this should be number one gauge. If you think about it for a second, when economies are growing, when we say growing, what we mean relative to where it was and obviously we have four seasons, so you don’t want to do this quarter to quarter comparison, you want to look at, well, last year, relative to last year, you know, in the spring time, because we know Baskin and Robbins doesn’t in the winter, they hire in the spring, I don’t want to talk about Baskin and Robbins spring time hiring versus what they did in January. I want to talk about it, you know, versus last year. Home Depot is hiring 80,000 people this year, that’s the same as last year. That tells me we’re not really seeing a lot of growth.

Well, with jobless claims, you ask the same question. It’s the flip side of hiring. Are we growing enough as an economy that the number of people who have been fired is going down and as long as it’s going down, that’s an economy growing. It’s kind of some red-flag, you know, as we get closer and closer the number of jobless claims last year, historically that’s your tipping point. That’s where businesses are saying, look, we are more or less have reached equilibrium, we have enough people on our books today to support our business today and tomorrow and if we want to talk in terms of inflection points, historically once we’ve been in that bottoming for six months, you got a recession. It happens.

Jason:

Let me ask you a couple of things here and I want to make sure we save enough time to get to gold, because yeah, you’ve got an interesting post, Andrew, about the gold bubble in context and I would just love to talk to you about that, because, you know, I don’t even think gold is that great, but I think it’s a really interesting measuring stick in so many ways, but how does this, when you look at, of course, you know as most people, employment numbers and so forth, they’re manipulated of course and I’m sure you’re taking that into account, but what about the issue of technology and especially robotics, because generally technology is deflationary, it gives you a better life, it gives you more stuff, at a lower price or the same price, right.

So, technology always improves things, but then when technology takes jobs away and there’s this adaptation time that maybe takes a couple of years for people to gain new skills and get re-employed doing something else or maybe as some are predicting, which has never happened before, you know, 47% oddly, it’s 47% that’s the odd number by the way, of the jobs in America are literally up for grabs but autonomous cars and all sorts of technological innovation that is five years around the corner. So does that really, the big question I’m really wrestling with and I’d love your opinion on it, is ultimately, are we just entering an era of huge unemployment massive recession and, you know, the end of the world as we know it or are we entering a utopian world where we all only have to work three days a week and we all have enough because technology will provide it to us and like is wonderful and it’s the best time to be alive, ever. I’m not sure!

Andrew:

I think, you know, change is scary. Now, I live in Silicon Valley which thrives on change, drives change, but I think for most people change is scary, but take a historical perspective. There was a time when a huge chunk of jobs out there were gas lighters, because we didn’t have electricity, you couldn’t just flip a switch, you had people paid to walk around. They were driven out of jobs. There was a time where Blockbuster, it was 60,000 people on the payroll, boom, Netflix put them out of business with 2,000 people on the payroll. So, change happens and it’s scary. I think what causes the pain isn’t just the speed of which change happens, you know, Netflix was out there for a decade almost before Blockbuster threw in the towel. They didn’t know how to embrace the change.

We had problems, I think with – actually I’d say government policy that kind of creates a choke point, a bottle neck, until finally when change does happen, it’s bad. Let’s talk about that for a second. Let’s talk about it in today’s world where to be honest, the bulk of the jobs that are still struggling are construction, why? Well, because 10-15 years ago under Greenspan, we created this policy that said we need to build, building homes is the way to go for creating wealth in America and whatever, the greatest policies is that, yeah, no investment. So, all of a sudden a million people instead of getting trade jobs that could be used outside of construction suddenly what they know is wielding or what they know is glazing and when there’s nothing being built, they have to shift those skill sets and they don’t have anything to shift to.

So, what I’d say is change is great. Instead of saying, oh, all these jobs are going away, I’m in Silicon Valley, we can’t find software engineers to hire and to be honest, software engineering should be a remediate skill taught in highschool. It should be, you know, if someone doesn’t want to go in one direction, they wanna do shop, well, shouldn’t software programming be the equivalent of shop? I mean, at a certain point in time, we need to acknowledge that we’re in a digital, why can’t you have a couple hundred thousand Americans who maybe previously doing, I don’t know what, in working in construction, spend a year learning, you know, learning he ins and outs of software.

There’s a great Superman movie. I think it was Superman 2 or 3 where Richard Pryor, you know, tumbles into a software programming job, again, it’s Hollywood, but the point here is that we have demand. We have misalignment of skill set to that demand and that’s because of policy, not because of economy. I mean, since the 90s we’ve had the internet, 20 years plus we’ve known that software programing is a big business. It’s huge.

Jason:
Interestingly by the way, I want to mention something about that, I remember seeing programs about how we had this huge shortage of programers and how just to program a cellular phone, this was before smartphones, you know, it takes so many lines of code and all this stuff, and some how we kind of figured that out and the world didn’t end, you know. Lots of people are programers nowadays. I don’t know, I’m sure there’s a shortage of talented ones, but you know, you go on eLance, oDesk, Guru.com, or any of these websites and you got the whole world of programers available, RentACoder or any of those available to you for pretty low prices, actually.

Andrew:

It’s a commodity service, it isn’t, you know, a lot of people it’s intimating software coding is beyond me, but so is brain surgery. At a certain point of time this is a skill set like any other and it can be taught like a skill set. I think the challenge is really, you know, when you’re competing for the career trajectory of a young person, on the one hand you’ve got these ridiculous hundred million dollar salaries to be a baseball pitcher, c’mon. You don’t have the same thing until recently for software programers. Silicon Valley has brought that out and said, wait a second, you can change the world and make a lot of money. That’s exciting and that’s interesting.

To be honest, this is such a merit-based economy here. I think if one were to go out to your generic Silicon Valley, you would be impressed at the representation of minorities and women compared to other companies. It’s really, Silicon Valley really is that egalitarian, it’s a very tight bay environment. This is, to be honest, isn’t California sort of the last of where the pioneers stopped. I mean, I have this theory about why divorce rates in California are so high, you and I were talking about something like this early, my theory about divorce rates in California being so high is because we attracted all the type As. Everyone who was comfortable, you know, they got off in the mid-west, you know, pioneering days. If you weren’t happy, wanted more, wanted more, type A thing, you kept going until you got to the water. Okay, can’t continue on, you know.

Jason:

Can’t go any further. Yeah, there’s a lot of very interesting things. Whenever someone reads statistics, you know, you look at it in housing, you look at it in every part of the economy and then sociology, you know, there are so many layers to these onions that just people don’t usually examine I don’t think. It’s too bad.

Andrew:

That’s where I came from, so, when I do Moneyball Economics the idea here is to step back and say, look, if this is the way the economy really is functioning, what types of data points will be thrown out? It’s kind of like, I’m not a hunter, but I know how people hunt, you know, they don’t try and find the deer, they try to find the tracks of the deer. They try to find the things the deer is leaving behind to then follow, right. That’s kind of what I’m doing is I went out and I said, hold on, I’m not married to certain models or conventional data points, I have first hand experience in the supply chain, the global supply chain, how we’re harnessing India, China, everyone to make and support products being sold and service.

I know exactly what a business operations look like, I know what CEOs are looking at on their executive dashboards, I know what pieces of information are important to them and knowing that, I harnessed it and said, so, what data points would I look at if, you know, I were Stevie Cohen and had billions of dollars under my belt and wanted to know where to put my money and what I found was that most of the data points I would use are not being used in conventional main stream economics. So, it’s not a freakonomics approach where you say, hey, isn’t that novel, look at how prostitute behave and isn’t that really neat how it looks like a hotel model. That wasn’t the approach. The approach was the internet has released, there’s no more gatekeeper for information, internet has released information.

Jason:

It’s very democratic, yeah.

Andrew:

Very democratic. In fact, during the recession..

Jason:

The world is flat concept.

Andrew:

You still had the guards, you know, you had the people, the feds, saying how dare you give your opinions, you know, to some people who were blogging and saying, you know, gee, I kind of think you’re wrong out there and it was really interesting, because, again, it gets back to a lot of what I’m doing is I’m coming in from the side door, right, and I’m harnessing data that doesn’t, that passes the snip test in more ways than conventional data does, again, statistics means you gotta have a good sample set. When they do the consumer sentiment report that comes out every month, they’re talking to 400 people.

Jason:

That’s it? Unbelievable.

Andrew:

That’s it.

Jason:

400 people out of 310 million and that’s the consumer sentiment index, my god. That’s scary. Is it the same 400 every month?

Andrew:

You gotta wonder. By the way, are they calling them on a land line or a cellphone, because who is at home? The land line, you know. So, what I found is by being a mechanic and looking at how data pulled together, you would say this, a lot of the data that we rely on is actually kind of model and fudged, it got it’s – hey, it’s hard to come up with this data every month. God bless the United States government for trying, but don’t hold it up as a holy be-all and end-all, revisit it.

Jason:

No, question. Just like, you know, with your hookernomics report, but one of the points of that is that when you look at these big reports that are released by all these government agencies, you know, it’s never the boots on the ground, and even though the boots on the ground guy can’t give you great stats and can’t give you really pretty looking reports and spreadsheets and graphs, there’s, you know, an innuendo, and that’s what we definitely learn in real estate, like we can sit here in our offices and we can do all the research we want, we can look at the census beau, we can look at every housing report, and every report about rents and so forth till you’re blue in the face; the moving reports from the movers, those are quite interesting, but at the end of the day, it’s talking to the guy on the street and that’s why when I travel, I love talking to, you know, the Uber driver, right, or the Lyft driver.

Andrew:

Let’s talk about that for a second. Let me correct you on one place where I will agree with you 99% of the time, except for jobless claims. Jobless claims is not modeled, it’s not fudged. Someone had to literally go in with a piece of paper, so you have a comprehensive.

Jason:

Well, the claims aren’t, but then there’s the labor, you can dice it up though, alright there’s the labor participation rate, there’s…

Andrew:

Now you’re talking about, exactly, where it gets fudged.

Jason:

When you get into this world of free agents and independent contractors like we have and solopreneurs, it’s admittedly harder to track that it was in the 50s, 60s, and 70s, right? Where you either had a job or you didn’t back then, now a days there’s a lot of in between.

Andrew:

I don’t want to know what happens six weeks ago. I want to know what’s going on today, what’s on the mind, you know, that’s why for example I think this is a supply chain. What’s interesting is, so I got on a flight over the summer last year and I sat to a guy named Harvey and it’s really funny because I was sharing this story with somebody two months ago at a conference called The Super Investors and this guy said, oh my god, I know Harvey and we compared notes and sure enough he did. Now, Harvey is this really cool guy I met on the plane. He owns a couple of companies around the world and they make stuff, they make novelty stuff. Can I share this antidote with you, because it’s really interesting, it’s sort of shows how I think we all know we should be going forward and understanding things.

So, Harvey is in the novelty business. One of the things that he does is he actually dominates every Halloween you might see people who decorate houses and they put these spider web white strands of stuff up, that’s his thing. He dominates that. He dominates on Easter the green fluffy stuff that you put the Easter eggs in. Novelty stuff, right. Well, what Harvey explained to me was in his business he’ll talk to a Walmart or a Target in December/January about next year. Literally Walmart and Target are deciding in January what they’re going to be selling in September and October, okay.

So, there’s a nine month supply chain and this is remarkable for a couple of reason, it’s not just Harvey’s industry. Every industry out there, because of this global supply chain and thanks to the internet it’s very tight, you no longer have to guess about what you need to have on hand. What is happening today is in order to manufacture, get through customs, because you know, all these different rules and regulations, you have to place your orders months in advance.

Well, if I could find all the Harveys in the world, put them in a room, and ask them, you know, in January, guys, what’s Walmart expecting their business to look like, if they come back to me and say, it’s better than last year, worst than last year, the same, anything they tell me is useful because I know well in advance what to expert.

Now, is Walmart going to be correct in their assessment? Turns out they’re pretty darn good, right, but at least I understand that all of a sudden there’s going to be a certain amount of capital investing and all this other stuff harnessed to this demand. It could be higher or lower, it doesn’t matter. Right now I know what everybody is building towards and that gives me a line of sight to a lot of things. What I’ve done is I’ve recognized that semiconductors are the universally common denominator in the global economy.

You can’t do anything without a semiconductor being in it or being in the machine that made it and semiconductors are also cool because they are very industry specific. There’s a group of companies that do autos. There’s a group of companies that do factories, so you can get laser like if you want to go industrial. The bottom line, semiconductors, they have a short shelf life, these aren’t tires. You can’t buy them and stack them up and get to them when you need to, that chip you bought today, is going into, you know, when Apple releases their iPhone in September, they were having their vendors ready in January. They were having everything and so my goal is not to wait and look backwards and say, oh, tat just happened and let me tell you why, my goal is to say, I’m going to tell you what’s about to happen and it’s going to be based on the supply chain, because the supply chain isn’t a mystery, you can see it, when cargo is…

Jason:

Right, you can see it happen.

Andrew:

Yeah, you can touch it and even better, you can see months in advance and again, things like Harvey’s business, he’s got a nine month window that he’s operating in. Semiconductors are a little tighter.

Jason:

So, with that, before we wrap up, I want to ask you, what predictions do you have, I mean, everybody wants to know where we’re going, whether we should expect inflation or deflation. The stock market is a bubble about to pop, you know, any of these things along this lines that you care to, you know jump into the forecasting world.

Andrew:

Only if you bring me back in a few months and you hold my feet to the fire.

Jason:

Okay, happy to! Go for it.

Andrew:

My whole perspective is that we are in the 9th inning. We caught a little bit of a break with the oil deflation, the commodity deflation, and that’s still working its way through the broader economy. That’s going to happen. It makes the US look really good right now relative to our peers, but there’s a reason why 20 some odd central banks in the world recently cut their rates. When they cut their rates, it’s the equivalent of us raising our rates, so ultimately there’s two markets out there. There’s the bond market and equity market and depending on where you have your investments, I mean, you’ve got a dollar that’s got 430% price against the Euro. Is it going to go to 40%? C’mon, it’s pretty much traveled most of the distance it’s going to travel in the near term. I would actually see some weakness just as we get some consolidation, but fundamentally the entire world is harnessed to what’s going on in China. They created this super bubble over the past couple of years with their super investing that drop up commodity prices. Now we’re seeing the tides rolling out and guess what, there’s not a lot there. China is, there’s no soft landing for China. I don’t care what an expert tells you.

Jason:

Totally agree by the way, yep, yep. China is in trouble.

Andrew:

China is in big trouble and the blow back is already being felt in what I call the feeder economy, the countries like Brazil, Australia, that are directly tied to them. For the US, we’re kind of buffered from a lot of this, but not really. I mean, take a step back. We are entering our sixth year, July will be a sixth year of a recovery, traditionally, we’d be in a recession.

Now, my own view we can continue on for awhile, again, thanks to the internet things are a lot leaner in our world, we’re a lot less fat, we’ve leaned out a little bit, so we can have longer cycle, little bit shallower GDP growth, but we can, you know, not recessionary, but now we’re getting into technical nuances. Is it a recession, is it a slow growth? Hey, bottom line, we’re somewhere in the 8th or 9th in.

I’m getting defense, what I’m doing is I keep – I’m not a great stock picker by any stretch of the imagination, but what I did is I’m in the equity market right now. I believe it still has a ways to go this year, but I’m not going to try to time the market. I’m going to assume that when jobless claims relative to last year stop dropping and by the way, they’re only within 20,000 of last year, so they’re about 90 something percent of last year’s numbers.

Once we get closer to that zone, I’m out of the equity market and I’m on the sidelines. I think that’s an end of the year situation. I think the fed will screw things up if they raise rates, it will bring the economy to halt. I think they have boxed themselves into a corner, they’re trying to say we should raise rates, they missed their opportunity. At this point in time, the rest of the world is on a global demand-driven slow down. Everyone has what they need, China is falling apart, Japan is boxing way ahead of their weight. I’ve been predicting, last year I said the Japanese Yen has to go..

Jason:

Oh, Japan is totally in trouble, yeah.

Andrew:

So, two years ago when Japan was at 80 Yen to the dollar, I said they’ve got to go to 110, boom, they went to 110. Last year I said they gotta go to 120, I think it was a month or two ago I said they gotta go 140. Last year I was saying we gotta see Euro paired.

Jason:

I mean, is Japan going to default on their debt? They’ve got massive debt, it’s just unbelievable.

Andrew:

They want the Soros Black Wednesday moment, right. Here’s the problem is timing. We can talk about this for one second, just for the benefit of everyone, Japan doesn’t make things people want. I don’t care people say they’re the number one, two or three economy. The reality is when was the last time you bought a TV, a laptop, a network device, a smartphone, anything that was made in Japan. The answer is none. We haven’t for a years.

Jason:

What do you mean? I mean, people buy Toyotas a lot.

Andrew:

But they’re made here by the way. 90% of Toyota and Honda stuff is made here. Bottom line, they don’t really make anything anymore in the digital economy that anybody wants. Let me put that into terms just graphically. Japan in the last six-seven years, the exports to the US have contracted. They’re sending less dollar value good during that same period of time, you’ve got Korea sending us tens of billions of dollars more, Taiwan, same thing.

Everyone else is growing their trade with us, Japan is shrinking, because they don’t make anything anymore. They make cars and little bit of steal and this and that, they really have discounted from the global economy, what’s keeping the Yen afloat really was China. They did not want a cheap Yen because that competes with them in certain ways and also there’s some political cultural stuff going on there. There’s a lot of friction, not trade friction, but political friction. They’ve had to give that up. Over time Japan, Japan is so problematic, you know, the demographics, they have the oldest growing population of any industrialized country. They don’t have enough people working, they have this enormos debt load.

Jason:

They’ve got a major demographic problem. They gotta have kids, but it’s too late. They’ve got to start allowing immigration. Japan has got to stop being so insular or they’re just going to crash.

Andrew:

They’re facing a challenge, we’re sort of off on the side, but I mean, the reality is Japan is treated like an economic heavy weight when they’re really a middle weight, when you really look at where they are and where they’re going and the trend, they’re falling off the map of global relevance and this is, wow, yet they are buying, the reason I mention them is they have become the second largest creditor for the US. So, how is it they can support our debt, support their debt. I mean, I look at this and there’s a problem here.

I’m not Henny Penny by any stretch of the imagination, but there’s so much debt in the world. Look at the US, if I’m right and we’ve got a global slow down and that affects us, if I’m right, then we’ve got a global slow down and actually I’m putting out a report today, it’s not too premature to talk recession. We might as well start looking at this and understanding how far away or how close a recession is for the US. The global situation is there, but the reality is let’s take that hypothesis, a year or two or three, whenever the recession happens, how do we fight that when we’ve got almost 20 trillion in debt already. It’s not really going down that much, no it goes down to 15 trillion over the next year or whatever and interest rates are zero. What kind of policy or ammunition can the federal allow.

Jason:

They run out of bullets, you know.

Andrew:

Right now that’s my core concern is we have a problem if there’s a recession, there really is no monetary solution. When you look at Japan, while bombing the Yen helps, as soon as you bomb the Yen, their industrial production goes up, because they steal market share from someone else because their steel is cheaper, but long term, unless they make someone that’ global relevant beyond cars. Keep in mind, Korea is catching up to them with cars, so will China at some point. They don’t have a sustainable advantage, competitive advantage, right now. They have to reclaim that and if they don’t, again, all of this down to monetary policy isn’t going to solve the next recession for the US because we already kind of loaded on all of this debt, so I sit there and scratch my head and say, where will I park my money. Well, over the next year for me it’s no longer a question of if but when the recession starts.

Jason:

I gotta ask you if you’re a gold fan.

Andrew:
Not a gold bug, but for me, you know, I know the number one performing asset for awhile was gold, but there’s a reason why it’s down now.

Jason:

It wasn’t really number one though. That’s a myth and I’m going to challenge that.

Andrew:

Is it? I’m not a gold bug.

Jason:

The reason is and I know you’re not a gold bug and neither am I, but the reason is gold doesn’t produce cash flow or tax benefits. Income property was the number performing asset class. In those gold years, in the midst of a terrible recession, if you had income property in linear markets, not California, not the markets that crashed and burned, just the linear boring markets, you would have out performed gold massive.

Andrew:

Number one, number two, gold is definitely one of those where people can see it go, wow, it’s $2,000. It was $300 bucks just 10 years ago, what happened? Right. You can cherry pick the bottom and the top, I guess, that’s where a lot of gold bugs were going. Ultimately for me, my understanding of gold is that it was largely fear-based, inflation too, but largely fear-based. So, when you recognize that there’s no fear anymore in the US and central banks were coordinated, remember there was period of there where everyone was discounted, there was just all this fear, that’s when gold really tarted to shoot up, because people just didn’t know.

Jason:

They’re coordinated to suppress precious metal prices, because that is the competitive for their fiat currencies, so gold is the competitor to the dollar and Bitcoin same thing.

Andrew:

Bitcoin hasn’t succeed for a lot of those same reason. Bitcoin, I mean, there’s no difference between Bitcoin and the dollar. The dollar is basically digital now for all intents and purposes, except that Bitcoin has a controlled rate of growth versus what’s going on now. Bottom line, for me people, you kind of had those multiple ways, you know, people got into gold, because hey, inflation if it takes off and the dollar gets cheaper, then the nominal value of gold is going to go up, but there was this fear and then it was followed not just by fear, but the usual behavioral fiance everybody piling in at the last minute.

Jason:

There’s the fear trade then there’s the momentum trade.

Andrew:

Right. What I do is I like to use Google data, Google has got this wonderful tool. We mentioned consumer sentiment is 400 people, you can go on Google and you can track, you punch in the word inflation, and it will tell you over a ten period, you know, you can slice and dice it, but basically it says, this is how frequently the term inflation has popped up in search on Google. So, you’re talking about millions..

Jason:

Are you talking about the keyword tool or what tool specifically are you talking?

Andrew:

Google Trends is what they call it and I like to use it. So, what I do is every quarter I’ll triangulate on the same words and say, okay, unemployment, bankruptcy. Let’s choose those hot button words that, you know, are (#60:9?). People start talking about unemployment more when unemployment is ramming up, jobless claims and so forth. What you can chart the same with gold, the same mortgages is the interest in mortgage way down lately, the interest in gold, way down, people just aren’t that interested any more.

That tells me as an investor, I’m tapping into what millions of people are searching on, not 400, it tells me loudly in real-time, maybe if people aren’t talking about gold, they’re not afraid, they’re not interested in leveraging up on mortgages, maybe gold is a dead trade. So, what I’ve been predicting is I think it was about six months ago, you know, gold should be, based on all of this information at the level of interest of gold, it’s really heading below 10,000, it really is. You put some inflation metrics on there and say, well, it was here at this point at…

It’s, you know, it’s been bumping up to 1,200 and then all of sudden we’re sagging again.

Jason:

You probably heard it, but we had Harry Dent on the show a few times and he predicts gold will drop through 750 and then drop down to $250. Oh my god, that’s a sensational prediction. We’ll see if it’s that crazy, but yeah, that’s just amazing.

Andrew:

Where it ultimately goes, you know, god, who predicted oil at 43, right?

Jason:

Yeah, I know.

Andrew:

I think it’s, of course I’m in the business of being the kind of fool who has to predict things, but I’m much more, I’m much more in tune directionally. I’m also good at predicting, obviously because I’m one of the top forecasters out there, but it’s not so much the actual number that’s key. A lot of the times it’s directional, right, it’s look, I’ll never know the exact peek of the market, but am I going to be happy looking back that I got out when I got out. That’s all I want to know or I got in when I got in. That’s all I want to know. I might have done another 5%-10% better, that’s greed talking. I rather do wealth management and wealth reservation and capital preservation then, you know, I rather hit the singles and doubles and not try to swing for the grand slam home runs all the time.

Jason:

Absolutely, okay well listen, give out your website, Andrew, this is a fascinating talk. We really appreciate having you on. Give out your website if you would.

Andrew:

Okay, Moneyball Economics, come on down, it’s free, to emphasize that, it’s free. Reports go out every week on various topics relating to the economy as investors. MoneyballEconomics.com and then we’re also offering a free report right no that shows how vices, hookernomics, can help you understand exactly what’s going on in the economy today and tomorrow.

Jason:

Interesting stuff. Andrew, thanks so much for joining us.

Andrew:

Absolutely, thanks for having me on.

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